Masonry Magazine March 1971 Page. 10
# TAXES
By MIRIAM McD. MILLER
EMPLOYEE TRAVEL
A taxpayer, who was employed as an engineer & researcher in the aerospace industry, instructed at UCLA two nights a week. In order to keep abreast of technical developments and professional opportunities, the taxpayer traveled by car to attend various meetings, to engage in research at various libraries and meet with other engineers and researchers. The Tax Court was presented with the question of whether the various automobile expenses that the taxpayer deducted were legitimate deductible business expenses.
The Court ruled that while commuting expenses are not deductible, the cost of traveling from one place of employment to another is a deductible business expense, and other automobile expenses were found to be personal expenses. Therefore, in this case the only automobile expenses that the taxpayer was allowed to take were those incurred on those nights in the week when the taxpayer went from his engineering job to UCLA. Adleburg vs. Com'r, T. C. Memo 197115.
ADVANCES BY MAJORITY STOCKHOLDER
The IRS has just restated its position regarding the question of whether a taxpayer may deduct as business expenses sums advanced by him to the corporation in which he is the major stockholder.
The taxpayer involved had purchased the majority of stock of a corporation. However, the corporation was not successful. From time to time it became necessary for this major stockholder to advance sums of money to the corporation to enable it to pay the salaries of its employees. These sums were not gifts and the taxpayer had accepted demand notes of the corporation to cover his advances.
The IRS pointed out that while it was true that this taxpayer devoted most of his time to the affairs of the corporation, the sums advanced by him were expenses incurred in carrying on the business of the corporation and not the business of the taxpayer.
Therefore the IRS ruled that advances made by such a taxpayer cannot be deducted as an ordinary and necessary business expense in the year paid. Rev. Rul. 71-36.
SUPREME COURT
The Supreme Court has recently ruled on the issue of whether the IRS can obtain from an employer any records that he may have concerning an employee-taxpayer's employment and compensation during the tax years that are under investigation by the IRS.
It was the contention of the employee that such action by the IRS violated his constitutional right "to be secure in his personal papers and personal effects from unreasonable search and seizures."
The employment records that the IRS sought to obtain were such things as the employee's application for employment, records containing background data, the social security number given by the employee, a schedule of the payments made to the taxpayer, expense vouchers submitted by the taxpayer and any correspondence or any records related to the foregoing.
Mr. Justice Blackman, the latest appointee to the Supreme Court, made it clear in his opinion that a taxpayer-employee has no proprietary interest of any kind in records which are owned by a third person (e.g. his employer) which are in the hands of the third person and which relate to the third person's transactions with the taxpayer-employee.
The Court noted that if an employee has any protectable interest in the records of his employer (possibly by way of privilege), this interest may always be asserted by an employee in any subsequent trial. Therefore, the Court ruled that the employee had no right to intervene in such a summons for records by the IRS. The Court said, "Were we to hold otherwise, as he would have us do, we would unwarrantly cast doubt upon and stultify the Service's every investigatory move."
Mr. Justice Douglas, in concurring with the opinion of Justice Blackman, stated that the taxpayer would clearly have standing to raise a violation of his constitutional rights if a third party were ordered to produce records that belonged to the taxpayer. "But it is difficult to see how the summoning of a third party and the records of a third party can violate the rights of the taxpayer, even if a criminal prosecution is contemplated or in progress. There is no right to be free from incrimination by the records or testimony of others." Donaldson vs. U.S. (U.S. Supreme Court 1971)
NEW TAX LAW
President Nixon recently signed into law a provision for the speedup in the collection of estate and gift taxes and for the continuation of the excise tax rates on passenger cars and communication services. Now the estate tax return due date and payment of the tax is shortened from 15 months to 9 months after the decedent's death. This law is applicable only to estates of persons dying after 1970. The gift tax is no longer payable on an annual basis. Rather, the payment and filing of the return for gift tax must now be done on quarterly basis. The 7 percent excise tax on automobiles and the 10 percent excise tax on telephone service will continue through the 1971-1972 period.
DEMOLITION LOSS
As you probably know, the revenue laws allow deduction for losses due to the voluntary demolition of old buildings. Of course, this deduction is not applicable when a taxpayer buys a piece of property with the intention of tearing down an old building thereon and replacing it with a new structure. In general, a demolition loss is the remaining undepreciated basis of the buildings destroyed. Thus, if at the time of purchase the taxpayer has no intention of demolishing and later decides to have the buildings torn down he may deduct the remaining undepreciated basis of those buildings.
Through the years a conflict of opinion has developed between the IRS and the Tax Court (and some other courts) regarding this deduction when the razed structure is replaced by a new structure. It has been the position of the IRS that when a taxpayer decides to demolish a building.